Simple Tax Guide for Americans in Peru
At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and green card holders working in Peru for over 8 years. Our clients hail from all parts of the country - Lima and Arequipa, Trujillo and Chiclayo, Piura and Iquitos.
As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country.
We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS.
The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.
We have many clients living in Egypt and know how to integrate your U.S. taxes into the local income taxes you pay. Any Egyptian income tax you already pay can be claimed as against the tax liability on your U.S. return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the calendar year as is standard in Egypt for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.
Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax; we look forward to working with you.
Below we include information on the Peruvian Tax System for the American Expatriates.
Peru Income tax for 2019 on domiciled individuals is imposed on a scale of brackets on their income, as shown below:
|Reference in tax units *||Tax rate (%)|
|Up to 5||8|
|5 to 20||14|
|20 to 35||17|
|35 to 45||20|
For 2019, a Tax Unit (UIT: Unidad Impositiva Tributaria - a reference unit for the computation of tax and penalties) is equivalent to 4,200 Peruvian soles (PEN). The first seven tax units are exempted from tax.
Income tax on non-domiciled employees is imposed at a flat rate of 30% on their gross Peruvian source income. No deductions or credits apply to non-domiciled individuals.
Individual Income Tax in Peru is determined by the domicile rather than by residence. Foreign individuals are deemed to be domiciled in Peru for tax purposes if they have resided or been in Peru for more 183 calendar days within a 12 month period. Temporary absences up to 183 days within a 12-month period do not interrupt the continuity of the residence.
The condition of being domiciled is determined at the beginning of the fiscal year. Changes regarding this condition during the fiscal year shall enter into force as of the next fiscal year. This means that non-domiciled individuals who obtain residency after June 30th must wait until the next year to apply the domiciled tax treatment, and the change will be effective in the following year.
Domiciled individuals are subject to Income Tax on their worldwide income, where as non-domiciled individuals are only taxed for their Peru source income. Non-domiciled individuals are entitled to a foreign tax credit for the taxes paid on foreign income taxable in Peru, determined by his / her average Peruvian tax rate applied on his / her foreign income, up to a limit of the amount of tax actually paid abroad.
The following categories of income are subject to income tax in Peru:
- - Earned income
- - Income from self-employment
- - Trade or business partnership
- - Dividends
- - Interest
- - Rental income
The following categories of income are exempt from tax:
- - Prizes are exempted from tax unless they relate to rewards related to employment.
- - Maintenance, repairs, fuel, and lubricant expenses for a vehicle, which is the property of the company and is provided for the exclusive use of the executive, necessary for his/her labor.
- - Board and lodging expenses of the expatriate and his/her family, incurred during the first three months of living in Peru. It must be pointed out in the working contract approved by the labor authority that the employer will assume such cost.
- - Airline tickets at the beginning and end of the work contract, as well as airline tickets to the home country for vacations accrued during the term the work contract is in force. It must be pointed out in the working contract approved by the labor authority that the employer will assume such cost.
- - Traveling expenses to Peru and the cost of bringing luggage and household goods and belongings into Peru, incurred at the beginning of the work contract and traveling expenses out of Peru and the corresponding moving expenses upon the termination of the work contract. It must be pointed out in the working contract approved by the labor authority that the employer will assume such cost.
Tax Filing status – Spouses can choose which spouse will file the tax return.
Taxable income – Taxable income is divided into specific categories: labour income (derived from employment and independent personal services) and capital income (interest, royalties, capital gains and income from the leasing of assets). Business income earned by an individual is subject to the corporate tax regime.
Capital gains – Capital gains are taxed at a rate of 6.25% on net income (effective rate of 5%). Gains derived by nonresident individuals from the transfer of securities outside the country are taxed at a 30% rate, as are gains from the transfer of real property within Peru. Transfers in Peru are taxed at a 5% rate.
Tax Deductions and tax allowances – An individual is allowed a deduction from capital income and labour income
Other taxes on individuals:
Capital duty – No
Stamp duty – No
Capital acquisitions tax – No
Inheritance/estate tax – No
Net wealth/net worth tax – No
Real property tax – Tax is imposed on the total value of real property owned by a person.
Social security – Only the employer is required to contribute. The employer pays a 9% social security contribution for its employees.
Peru Tax year – Peru tax year is the calendar year
Filing and payment – An annual income tax return must be filed within 3 months of the end of the tax year.
Penalties – Penalties apply for late filling or failure to file.
Peru Corporate Tax
Corporate tax rate in Peru is 29.5%.
Residence – An entity is considered domiciled for tax purposes if it is incorporated in Peru.
Basis – Domiciled corporations are taxed on worldwide income. Non-domiciled corporations and branches of foreign entities are taxed only on Peruvian-source income. Foreign-source income derived by residents is subject to corporation tax in the same way as Peruvian source income, but it is calculated separately. Branches are taxed at the corporation tax rate, plus a remittance tax. Subsidiaries are taxed at the normal corporation tax rate.
Taxable income – Taxable income is comprised of all profits derived by a company, including capital gains. Normal business expenses may be deducted in computing taxable income.
Taxation of dividends – Dividend distributions between resident entities are not taxed. Foreign dividends received by a Peruvian entity are included in taxable income and subject to the normal corporate tax rate, but with a tax credit for foreign tax paid on the dividends. Dividends and other profit distributions, as well as a branch remittance of net profits abroad, are subject to a 4.1% withholding tax when paid to resident and nonresident individuals and nonresident entities.
Capital gains – Capital gains are generally included as income and taxed at the normal corporate rate.
Losses – A taxpayer has the option to carry forward all net operating losses for 4 years or carry the losses forward indefinitely, but only up to 50% of the taxpayer's taxable income of each subsequent year. Loss carryback is not permitted.
Surtax – No
Alternative minimum tax – No
Participation exemption – No
Holding company regime – No
Foreign tax credit – A tax credit is available for income tax paid on foreign-source income equal to the actual foreign tax paid or the Peruvian tax liability on the income, whichever is less. Excess credits may not be carried forward.
Tax Incentives – Investors in large mining and oil or gas operations may conclude tax law stability agreements with the government for periods of 10 to 15 years.
Dividends – Dividends paid to nonresident entities (companies) and to resident and nonresident individuals are subject to a 4.1% withholding tax.
Interest – Interest payments to a nonresident non-related party that satisfy certain requirements are subject to a 4.99% withholding tax; otherwise, the rate is 30%.
Royalties – Royalties paid by a Peruvian resident are considered Peruvian-source income and, consequently, subject to a 30% withholding tax.
Branch remittance tax – The remittance of net profits abroad is subject to a 4.1% withholding tax. Branches of foreign companies are subject to the 30% standard rate of corporate income tax, plus the 4.1% tax on the remittance.
Other taxes on corporations:
Capital duty – No
Payroll tax – No
Stamp duty – No
Real property tax – The municipal authorities levy real estate property tax at progressive tax rates of 0.2%, 0.6% and 1%, depending on the value of the property. The tax is a deductible expense for income tax purposes.
Social security contributions – An employer pays a 9% social security contribution for its employees.
Transfer tax – The transfer of buildings (real estate property) are subject to a 3% transfer tax, with the first 10 tax units being exempt.
Other – A Temporary Net Assets Tax (TNAT) is imposed on the value of total assets exceeding PEN 1 million, at a rate of 0.4%. A Financial Transactions Tax of 0.05% is imposed primarily on debit and credit transactions with Peruvian bank accounts.
Transfer pricing – Transactions between related parties or between a Peruvian person and an entity in a tax haven jurisdiction must be carried out at arm's length prices. If the price agreed upon is not arm's length, the tax authorities may adjust the price. Jurisdictions that are deemed to be tax havens are set out in a list issued by the tax authorities. Transfer pricing documentation is required.
Thin capitalisation – Interest paid by resident taxpayers to economically related or associated enterprises may not be deducted if a debt-to-equity ratio of 3:1 is exceeded. However, the interest is not recharacterised as a dividend.
Controlled foreign companies – No
Other – A transaction that exceeds USD 1,000 must be paid via check or other means of verifiable payment.
Disclosure requirements –No, other than transfer pricing documentation.
Peru Tax year – Peru tax year is calendar year
Consolidated tax returns – Consolidated tax returns are not permitted; each company must file a separate return.
Penalties – Penalties apply for late filing or failure to file.
Tax Filing requirements – An income tax return must be filed on an annual basis, with advance tax payments made monthly. Companies are required to make 9 monthly advance payments of income tax based on a percentage of net assets (TNAT) and 12 payments on account based on monthly taxable income. An annual self-assessment tax return must be filed, and final tax must be paid by the first week in April following the end of the tax year.
Peru vat (Value Added Tax)
Standard VAT rate in Peru is 18%. Exports are subject to a nil VAT rate.
Exempt supplies include: agriculture; education; basic foodstuffs; low-value new residential buildings; financial services; public transport; public post; international freight transport; livestock; gambling; and live events.
Certain supplies are liable to withholding VAT, ‘SPOT’, of 4%, 10% or 12%. These include outsourcing services. Tax payers must split the VAT withheld, and remit it to a special VAT account with the national bank. Balances held on this account may be used to settle future liabilities or reclaimed after three months.
Small businesses may apply for a flat-rate VAT procedure, whereby they are set a fixed about of VAT due based on the size of their monthly turnover.
The VAT Law follows a debit / credit system, and input VAT may be offset by output VAT. Should excess input VAT be obtained in a particular month, it shall be offset by output VAT obtained during the following months until it is exhausted. Cash refunds of excess input VAT may only be made if it is not possible to offset the excess input VAT related to the exportation of goods and services, as explained below, but not to domestic transactions.
Taxable transactions – VAT is levied on the sale of goods, the provision and use of services, the first sale of real estate by a contractor and imports.
Registration – Taxpayers are required to keep accounting books (such as purchase and sales ledger).
Filing and VAT payment – VAT returns must be filed on a monthly basis.